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The vast majority of annual losses that result from criminal activity in business and government entities are not caused by shoplifters or burglars in the United States. It is employee-thieves cloaked in many forms who commit their crimes, which are often discovered long after their various schemes begin.

Their many schemes are identified as occupational fraud in the Report to the Nations, produced every two years since 1996 by the Association of Certified Fraud Examiners, or ACFE. The current report is based upon an analysis of 1388 cases that were investigated and documented by Certified Fraud Examiners in more than 100 countries on six continents. It provides a detailed look at the prevalence and culture of business thieves in categories such as misappropriation and theft of assets and cash, skimming, payroll fraud, financial statements and reporting schemes, conversion of assets, and corruption and misuse of influence.

Based upon the Gross World Product, the ACFE estimates that global losses from fraud may be $3.5 trillion. In my career in both the public and private sectors, my colleagues and I have been involved in thousands of criminal and civil investigations involving thieving employees, vendors, contractors and suppliers. We've caught perpetrators trying to steal, defraud, and convert assets that included anything from cash to precious metals, and trade secrets and intellectual property. No entity is exempt and, in our world, just about everyone can be engaged in some form of fraudulent activity and theft, be it office supplies, time, gasoline, telephone calls, cash, assets, food, liquor, pictures hanging on the wall, bed sheets, dishes, narcotics, credit cards, checks, information, and whatever else is available for the taking or diversion. They pad time sheets and expense reports, submit false medical claims, forge mortgage documents, submit phony bills to clients and customers, and anything else that can be imagined.

Our rule and mantra: “If it can be stolen, it will be, and often.”

No one is exempt. We have worked cases in businesses, retail stores, banks, factories, hospitals, clinics, nursing homes, cruise ships, copper mines, construction sites, car dealerships, restaurants, bars, casinos and literally hundreds of other venues. Any entity can and has been a target, even law enforcement agencies and jails and prisons, where inmates, correctional officers, teachers and senior staff have been caught in a variety of schemes to steal, corrupt, defraud, extort and improperly obtain or divert assets and use their influence for personal gain.

It is a multi-faceted problem but is rooted in two simple premises: everyone wants things they may not be able to afford (although that is often not the prime motivation for stealing) or they have a financial crisis that drives them to steal.

The message for every reader: any entity can be the subject of losses. Sometimes you may not even know it for many months, years, or ever, with the average scheme taking eighteen months to discover.Companies, governments, and other entities must understand how to mitigate or reduce losses from a multitude of criminal schemes designed to siphon assets, in many forms, which ultimately destroy many enterprises. The best protection against fraud is to prevent it before it can occur. If your entity or enterprise is operating without the proper controls and anti-fraud programs in place then you likely have been, are, or will be a victim. There are fraudsters everywhere and they are often destroying productivity, profitability, morale, and ultimately many businesses. They are able to get away with their crimes because the operation of almost all business is based upon trusting employees with resources and responsibility.

This was going to be a simple article on the best way to alert companies about occupational fraud and their employees, and then describe one solution. After reviewing many investigations, discussing this with my colleagues, and examining the latest ACFE report, I decided that this article should profile the company thief and the companies that are most at risk, and then talk about one of the most effective means to stop people we work with from engaging in illegal activities in the workplace. So in this article I will look at who and what the looters are, and in the follow-up I will describe the work of a retired FBI Special Agent whom I first met forty years ago in Omaha when I was in law school.

The businesses or entities most at risk

The businesses most at risk to internal fraud and theft, in the order of losses from highest to lowest, are banking and financial services, government, and public administration, and the manufacturing sectors. Small employers (fewer than 100 workers) are more commonly victimized than larger companies because they usually cannot afford strong anti-fraud measures. They're also often not in a financial position to absorb losses and less likely to recover either what was stolen or, in some cases, keep their business going as a viable entity.

The implementation of anti-fraud control measures is highly correlative with significant decreases in the cost and duration of occupational fraud. While these controls cost money, not to implement them usually costs a lot more in terms of dollars, business reputation, litigation, and other costs. Those organizations that had implemented any of these controls had fewer losses and detection time than those entities that did not put such safeguards in place.

Some sobering statistics about losses

Businesses, on a global basis, experience losses of about 5% a year from schemes executed by and with employees. The median loss was about $400,000, and in one-fifth of businesses that were surveyed in the ACFE study, the loss was at least $1,000,000. In the least costly forms of fraud, the cost to business was about $120,000.

In about 87% of the cases the appropriation of assets was the leading cause of losses. While financial statement fraud accounted for only about eight percent of all cases, it had the highest median loss of about $1,000,000 for each occurrence. Finally, corruption and various phony billing schemes made up about one third of all cases but more than fifty percent of the dollar losses, for an average of $250,000. This type of fraud was shown to pose the greatest overall risk on a global basis.

Many cases will never be detected, and of those that are discovered, the actual amount of the losses may never be known or reported. Almost half of the victim organizations do not recover any of their losses. In cases that are referred to law enforcement, 55% of the offenders plead guilty, 19% of prosecutions are declined, and 16% are convicted at trial.

A profile of the thieves within the workforce

The ACFE report analyzed a number of parameters to identify who he or she is: education, criminal history, employment history, job description, administrative level and responsibilities, gender, lifestyles, and other factors that tell the story. In my world I have found that long-term employees are the most suspect because of their knowledge of the inner workings of the entity and understanding of the controls that they must circumvent.

Identification of those engaging in criminal activity in business can be difficult and most often is not discovered in audits. In fact, only about three percent of business crimes are identified in this way because of the variety of schemes, lack of controls, and cleverness of the perpetrators. The best case in point involved an investigation that my colleague, retired FBI Special Agent Wayne Barnes conducted for a cruise-ship line several years ago that was owned by one of the largest ship conglomerates in the world. Barnes, who worked major fraud cases and counterintelligence investigations, was the FBI Agent who was ultimately responsible for identifying Robert Hanssen, one of the Bureau’s senior counterintelligence operatives who became a double-agent for the Russians and is now spending the rest of his life in federal prison.